US stocks tumbled overnight, driving the S&P 500 down to its third-straight weekly loss, as a steeper-than-expected slide in June non-farm payrolls revived caution about economic recovery prospects.

News that US employers shed nearly half a million jobs last month and the unemployment rate jumped to 9.5 per cent, the highest in nearly 26 years, dampened recent hopes that the recession might be abating.

US stocks tumbled overnight, driving the S&P 500 down to its third-straight weekly loss, as a steeper-than-expected slide in June non-farm payrolls revived caution about economic recovery prospects.

News that US employers shed nearly half a million jobs last month and the unemployment rate jumped to 9.5 per cent, the highest in nearly 26 years, dampened recent hopes that the recession might be abating.

The sour news is almost certain to flow through to Australian stocks and this morning, the SPI futures index was down 81 points at 3780. Resource stocks could be hammered, with the Reuters Jefferies index of commodities prices down 2.11 per cent overnight and the Australian dollar fell sharply, down from last night's local close of 80.29 US cents to 79.34 US cents.

Obama interview about the continuing loss of jobs across the country.

Investors pummeled stocks across the board, but energy, industrials, financials, technology and consumer-oriented shares were among the hardest-hit sectors.

These sectors were at the forefront of the broader market's recent recovery from the 12-year closing lows of early March as investors bet that the worst of the economic slump was over.

All told, the jobs data served as a reality check and signalled that any recovery will not be smooth sailing, analysts said.

Quite frankly, rising unemployment is bad for the entire economy. It's not positive for discretionary stocks. It's not positive for financials -- because there's a direct correlation between the high unemployment rate and charge-offs and delinquent payments.

For the week, the blue-chip Dow average slipped 1.9 per cent, while the S&P 500 dropped 2.5 per cent and the Nasdaq lost 2.3 per cent.

Light volume due to Wall Street's thinly staffed trading desks accentuated Thursday's sell-off.

Additionally, the New York Stock Exchange was hit by connectivity glitches that affected orders originating from the trading floor. The NYSE extended its regular close from 2000 GMT to 2015 GMT to execute customer orders affected by system irregularities.

US financial markets will be closed on Friday for the US Independence Day holiday, with July 4th falling on Saturday this year.

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US stocks rose overnight, the start of the third quarter, as reassuring manufacturing data from China, Europe and the United States reinforced hopes that the world's economy is on the road to recovery.

A day after the benchmark S&P 500 wrapped up its best quarter in a decade, investors plowed new money into stocks, boosting growth-sensitive sectors like energy, industrials, technology, materials and consumer discretionaries.

But with the release of the all-important June non-farm payrolls data just a day away, some caution prevailed, causing indexes to finish sharply off their highs.

Offshore, a weaker US dollar underpinned stocks of multinational companies such as Coca-Cola, up 2.5 per cent at $US49.18, as investors bet the US currency's decline might boost overseas earnings. Coca-Cola is one of the best-known defensive stocks, which are shares of companies deemed better able to withstand an uncertain economy.

General Mills, the maker of Cheerios cereal, also gave investors more reason to be optimistic about the economy after the food company forecast a stronger-than-expected annual profit, sending its stock up 3.9 per cent to $US58.18.

There are clearly signs that we are emerging from the recession. We think the economy has bottomed out and we'll see some positive GDP this quarter.

Even so, volume was light because of the absence of most market players in a holiday-shortened week. US financial markets will be closed on Friday for the US Independence Day holiday.

The Dow Jones industrial average rose 57.06 points, or 0.68 per cent, to 8504.06. The Standard & Poor's 500 Index gained 4.01 points, or 0.44 per cent, to 923.33. The Nasdaq Composite Index shot up 10.68 points, or 0.58 per cent, to 1845.72.

Earlier in the session, indexes had risen more than 1 percent, but pared gains heading toward the close as apprehension about Thursday's non-farm payrolls data crept into the market.

The initial estimate, according to a Reuters poll of economists, called for payroll losses of 355,000 non-farm jobs last month. But an updated poll this week of 76 economists raised the figure to 363,000 jobs. The department said in May that 345,000 positions were eliminated by employers.

The unemployment rate is expected to have crept up to 9.6 per cent -- its highest since June 1983 -- from 9.4 per cent in May.

Kraft Foods, another major US food company, jumped 5 per cent to $US26.61, following the outlook of General Mills. Kraft topped the Dow's list of major advancers.

Chip makers ranked among the Nasdaq's biggest boosters, with Intel Corp up 3 per cent at $US17.04.

In the latest readings on the global economy, surveys from Europe showed manufacturing was shrinking less than initially thought and in China's case, growing modestly.

Other data on Wednesday showed the US manufacturing sector contracted in June but at a slower pace than in May.

The Institute for Supply Management said its index of national factory activity edged up to 44.8 to in June from 42.8 in May.

Additionally, global outplacement consultancy Challenger, Gray & Christmas data showed planned layoffs at US firms fell to a 15-month low in June. That news eclipsed the ADP Employer Services payroll survey showing that private employers cut 473,000 jobs in June.

Prospects for a better world economy lifted commodity prices, boosting stocks in natural resource companies, including miners, with Newmont Mining Corp up 3.2 per cent at $US42.18.

Shares of Chevron Corp rose 0.4 per cent to $US66.52, while Exxon Mobil added almost 1 per cent to $US70.56. Both stocks were off their best levels, however, after crude oil futures reversed an initial climb that sent them above $US71 a barrel earlier on Wednesday.

US front-month crude slipped 58 US cents to settle at $US69.31 a barrel, after rising as high as $US71.85 earlier.

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US stocks fell overnight as an unexpected drop in consumer confidence cooled recent optimism about an economic recovery, but Wall Street still closed out its best quarter in a decade.

The drop in the Conference Board's measure of consumer confidence in June suggested that the 18-month-long recession had yet to loosen its grip on the US economy.

Gloom among consumers is a major obstacle as their spending is a major driver